Bank of England wrote to the courts warning them of increased applications from insurers

by

The court was warned of a deluge of applications from worried insurers (Source: Getty)

The Bank of England secretly warned the UK's courts of a potential deluge of applications from insurers seeking to avoid Brexit-related disruption. 

In the latest minutes from the Bank's Financial Policy Committee (FPC), it was revealed that Threadneedle Street was concerned that insurance firms were planning either to secure new authorisations for existing entities or transfer contracts to a new entity with the correct permissions, so as to maintain their operations throughout the Brexit process.

As the UK process of transferring insurance contracts relies on a court procedure that could take 12-18 months, the Bank said, "given the volume of these applications was expected to be three to five times the normal level, there was a risk that transfers would not be completed in time".

In light of the risk of delays, the Bank wrote to the High Court to "alert" it to the potential for increased applications. The central bank also discussed the issue with the Treasury. 

Read more: Government admits Brexit leaves insurers at risk from hundreds of thousands of 'illegal' contracts

The reason the FPC's concerns and consequent correspondence with the courts have only just emerged is that the committee "had judged that additional disclosures at that stage were against the public interest as it could prompt policyholders to take costly and potentially unnecessary actions to safeguard the future continuity of their contracts".

However, since the FPC's third quarter meeting, the Treasury has worked further on options to preserve the continuity of insurance contracts and "informed the committee that they were considering all options for mitigating risks to the continuity of outstanding cross-border financial services contracts".

"In light of this commitment, the committee judged that the risks of prompting unnecessary action by policyholders had reduced and agreed that the publication of its Q3 discussion on the risk of a discontinuity in insurance contracts could now be published," the FPC said.